Warren Buffett, often regarded as the greatest investor ever, announced his retirement earlier this month. His strategies at Berkshire Hathaway, the company he took control of in 1965, have consistently outperformed the market. According the company’s 2024 annual report [pdf], the overall gain for shareholders since that time is 5,502,284%!
For Irish investors aiming to build wealth over time, there’s much to learn from Buffett’s approach.
Who is Warren Buffett?
Warren Buffett is the outgoing chairman and CEO of Berkshire Hathaway, a multinational conglomerate holding company. Over the decades, he has transformed it into one of the world’s most successful investment firms.
Buffett’s investment philosophy emphasizes long-term value, often focusing on companies with strong fundamental and sustainable competitive advantages – for example Coca-Cola, in which Berkshire first invested in 1988.
Buffett announced on 3 May that he plans to retire at the end of this year, following his 95th birthday.
Five principles that have helped Warren Buffett win
1. Patience pays off
Buffett’s investment strategy is rooted in patience. He often holds investments for decades, allowing compound interest to work its magic. This long-term perspective enables investors to ride out market volatility and benefit from the growth of quality companies over time.
What this means for investors in Ireland: Investors with a long-term investment horizon tend to win biggest. By staying invested and avoiding the temptation to time the market, you can harness the power of compounding.
2. Staying the course amid market fluctuations
Buffett is known for his calm demeanour during market downturns. He advises against making impulsive decisions based on short-term market movements. Instead, he focuses on the intrinsic value of his investments, trusting that the market will eventually reflect their true worth.
This also involves acceptance that returns can be uneven. For example, Berkshire Hathaway shares have fallen in 11 of the 60 years Buffett has controlled the company.
What this means for investors in Ireland: Market volatility is inevitable. By maintaining a steady investment strategy and not reacting hastily to market dips, you can avoid unnecessary losses and stay on track toward your financial goals.
A good protection here is to hold cash that will get you through short-term dips – and even offer chances to invest at low prices. By some measures around a quarter of Berkshire’s assets are currently in cash-like investments.
3. Index investing can beat expensive fund managers
Buffett has been a vocal advocate for passive investing through low-cost index funds, and has questioned the value of high-paid fund managers to regular investors. In a million-dollar bet in 2008, he challenged that a simple S&P 500 index fund would outperform a selection of hedge funds over a decade.
The result? The index fund significantly outperformed the hedge funds, with a total return of over 125%. The selection of hedge funds had an average total return of just 36%!
What this means for investors in Ireland: Consider using index funds in your portfolio. They offer broad market exposure and often outperform actively managed funds over the long term, especially after accounting for fees.
4. Avoid short-term fads
Buffett steers clear of investment fads and speculative bubbles. He emphasizes understanding the businesses he invests in and ensuring they have long-term growth prospects. This has led to long-term holdings in big brands such as Apple, Kraft-Heinz, and Bank of America, as well as ownership of businesses in sectors that it seems likely we’ll always want to use, such as railways and insurance.
It has also help Berkshire Hathaway avoid some serious losses over the years – most notably in the dot.com bubble, where Buffett had steered away from investing in speculative technology investments that later failed.
What this means for investors in Ireland: Be cautious of chasing short-term investment trends. Focus on assets with solid fundamentals and long-term potential.
5. Buy when prices are low
Buffett’s famous advice, “be fearful when others are greedy, and greedy when others are fearful,” underscores his investment approach. He often capitalizes on market downturns to acquire quality assets at discounted prices.
What this means for investors in Ireland: Market corrections can present buying opportunities. By staying informed and prepared, you can take advantage of lower asset prices to strengthen your portfolio.
Warren Buffett’s investment principles are surprisingly simple, and applicable to us all. For Irish investors, embracing patience, maintaining discipline during market fluctuations, leveraging low-cost index funds, avoiding short-term fads, and seeking value during market downturns can pave the way for long-term financial success.
